The person who receives financial protection from a life insurance plan is called a beneficiary. It can be one person, several people, or charity. A beneficiary does not have any duties; this individual only receives a death benefit after the death of the insured person.
Explanation:
If a person is a breadwinner in the family and wants to protect close relatives in case of an unexpected death, he or she may insure his or her life. People can have three different roles in the procedure of life insurance: the role of the policyholder, the insured, and the beneficiary. The policyholder is an individual who purchases life insurance plans. The insured is a person whose life is the object of a life insurance plan, and, in case of this person’s death, his or her family will get a death benefit.
The beneficiary is the individual who receives the life insurance coverage in case of the insured person’s death. These roles may be assigned to three different people, but, in this case, the policyholder will receive a large tax bill after the insured person’s death. From a legal point of view, the policyholder will be considered a giver of a gift. This phenomenon is referred to as “The Goodman Triangle” and should be avoided by involving only two people in the process of life insurance.
There are no obligations laid upon a beneficiary; this individual only receives a death benefit after the insured person dies. However, there are certain rules as to how the insured person should appoint beneficiaries. A beneficiary can be one or more individuals, including children, spouses, relatives, or friends. A person may also choose the charity or other nonprofit organizations as his or her beneficiary.
If an individual’s family is well-off and does not need financial protection, he or she can designate a death benefit to his or her business. To make minor children beneficiaries is possible, but the insured parent should find a trustee. This person should be able to take care of children and make use of the death benefit since minors are not allowed to handle money before they come of age.
The insured person can also change the beneficiaries at any time and allocate the death benefit among them. It is useful in case of a divorce or the birth of new children. If the insured individual does not appoint any beneficiaries, or none of them is found after the person dies, the death benefit is paid to the person’s estate.
After the insured individual’s death, the beneficiary should copy the death certificate, find the insurance policy document, and fill in the necessary form in the insurance company to obtain a death benefit. The money can either be received all at once or be divided into a number of consequent payments.
There are some cases when a beneficiary can be denied a death benefit. For example, if it is proved that a beneficiary killed the insured person to get the money, the insurance company will not satisfy the beneficiary’s claim. The insurer can also deny a death benefit if the insured person’s death was caused by risky behaviors or bad habits that were not mentioned in the application for life insurance. As for taxation, a death benefit is tax-free if a beneficiary receives the whole sum at once.
